Prada posts worst results in luxury sector

Worldwide

Published: 15 April, 2016

After missing estimates in 11 out of the 12 past quarters, the Milanese luxury group struggles to convince investors of its “trendsetting” leadership ability.

Prada has posted a significant drop in full-year profits, with earnings before interest and tax decreasing 28%, and revenue dropping 14% in the year through January 2016. Shares dropped 29% on the announcement.

The company has been highly criticised for engaging itself in the opening of a long list of retail stores (around 80 were announced at the time) after being listed on the Hong Kong bourse in 2011, and overlooking other aspects of the economy. It has now been largely hit by the economic slowdown in China, where over a fifth of its sales take place.

According to market analysts, Prada failed to adapt to the slowdown, becoming over-dependant on Asia, and too ambitious in developing the retail stores with gaps in its portfolio for mid-priced leather goods.

Prada’s profit doubled between 2010 and 2012, and from 2011 to January 2016, the brand nearly doubled the number of retails stores; reaching a total of 618, of which more than 40% in Asia.

High prices are another culprit in Prada’s strategy. Some handbags are sold at almost US$3,500, placing itself in direct competition with brands such as Dior that are perceived as more exclusive.

After long ignoring the importance of the web, Prada said it will be introducing handbags with price tags under €1,400 and will offer a wide range of goods online. The announcement halted the shares’ downward spiral but it’s not enough to convince investors. It might be some time before the company to gets back on the profitability track.